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tv   Key Capitol Hill Hearings  CSPAN  March 3, 2014 10:30pm-12:31am EST

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of the 22,000 banks, customers that you had in 2006 at two you did the showing of compliance with our u.s. tax laws and when we talk about u.s. customers, 18,900 of those accounts that closed in today there are about 3500 that have been determined are in compliance. are those numbers correct? >> those numbers are correct as of today but i would like to add that in total we have reviewed tax compliance some 6678 of which about half, 3000 have been
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closed and 3000 the number you have just mentioned are still with us. >> so what is the total number of accounts that we no longer have of the 22,000? >> the 18,000 number you mentioned. and if i may add mr. chairman, we had a large population of u.s. resident clients. i would say 11,000 i believe that had account balances below 1 million dollars under asset management and they were not even given the option to stay because to move to one of our fully u.s. license broker dealers you needed $1 million is the minimum balance.
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18,000 of these did not have the opportunity to prove tax compliance. >> mr. cerutti your u.s. policy required that swiss accounts open for u.s. residents be concentrated in a single swiss office we talked about the sla in. is that correct? >> it required that it be concentrated. in saln and the other office near the airport those were the 12 that were later merged in 2009. >> all right and the point was that office was supposed to have a relationship managers they got special training in u.s. rio tory tax compliance. >> that's also correct mr. chairman although i would like to add that every single relationship manager with one or more u.s. resident clients got
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the training. >> you had how many relationship managers had one or more accounts? c. i think you mentioned the 1800 number at the beginning. i would deduct about 1000 those because they were dealing with expats. they were in the retail bank mostly and i think five, six or 800 i don't have the exact number but they would have all been trained. >> so you had about 1000 that you say were trained to? >> i think the number somewhat lower. we can provide you with the exact number. i think the staff would have it. >> there were about 1800 with one or more client accounts. as a matter of fact take a look if you would at exhibit 16.
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which page if i may ask? >> there should be numbered exhibits there area. >> exhibit 16 is a credit suisse presentation which i call the u.s. project steering committee number one dated august 19, 2008 and the last three digits, 306. the title of the chart is u.s. international is a set to the these spread out across whole organizations and it shows aside the saln there were another half-dozen offices in switzerland that serve u.s. clients. in 2008 there were over 1800 different swiss bankers with one
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or more client accounts. you said you wanted to deduct 600 or 800. dealing with expats or other reasons so that would leave about a thousand would it not? >> chairman i would like to deduct the third line, the 993 because that is our retail business in switzerland. they were mostly dealing with expats so that would leave around 800. >> you are saying that these are people who had special training? >> if you take the 800 u. deduct 240 and 650 at credit suisse. i need to check whether that's the right number but most of them if not all of them have been trained and i understand have training but i don't understand the details there so i would suggest we provide the
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staff at the exact number. >> assuming it's around five or 600, was the training about the same whether they were in saln or one of the other offices? >> i think they use the same training materials whether they spend the same amount of time as with the saln people i couldn't answer that question. >> their 1800 relationship managers approximately. is that correct? >> on this chart, yes. >> is that an accurate chart? >> that was a chart or bided for the first steering committee in d.c. that was august 2008 if you weeks after your report had been published. we were really trying to look at it to do the right thing. i would assume that these numbers are correct. >> so saln had or has 10% of the swiss accounts opened by u.s. customers? about 90% were spread out across the rest of the bank. is that correct? >> if you look at it from an
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account perspective, if you look at it from a financial perspective it's a little bit different. >> still only about 10% of the swiss accounts opened by the u.s. customers were in saln. this was supposed to be a place where they were going to be concentrated. >> plus the ones listed under -- because that would encompass the airport desk that you mentioned before. that's also an area of concentration. that's been almost 60 or 70%. >> 70% was spread out across the bank's? >> sorry mr. chairman about 70% were concentrated and those were the airport office in saln and obviously 30% i think particularly in hindsight we would have rather seen a more concentrated so we would have rather seen a 30% smaller but that is where we were at that point in time.
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70% in the two areas and 30% in the banks. >> this chart shows according to its title how spread out this was across the whole organization. weather was 30% outside of those two units are 70% this was spread out across the whole organization so you have 1800 or so according to this relation manager that were in contact with u.s. residents people and what that means of course is that when you have all those customers most of whom i think it's pretty clear perhaps 80 or 90% of whom were not paying their u.s. taxes, that is a very very major problem for us. it can't just easily be answered i believe by saying that the rogue bankers were all located in saln and that is where the
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problem was. you had bankers who were doing things that you acknowledge were improper. in some cases egregious and other areas that saln. >> is important to point out as we mentioned mr. chairman we have done a very extensive investigation across the whole bank including all of those that you mentioned, 1800 on all those other r. m.'s and we did not find misbehavior that was egregious and should have happened that we found in saln and it didn't happen there. from a business point we would have rather seen it more concentrated but we have not seen any of the uses in that broad population. >> are you saying all the abuses you of knowledge were found in your investigation all of those abuses were concentrated in saln? is that what you are saying?
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mr. cerutti says he doesn't even know what you call egregious conduct and i would agree with you on that issue is concentrated in saln. he doesn't know that. >> was centered around saln but it was probably also outside of saln. >> you would call rob bank? >> it's hard to exclude there weren't issues outside of that but again the vast bulk of that behavior was in that one area so there were smatterings of issues elsewhere she would expect and obviously disappointed with that as well but the vast bulk of it was in that area. >> the vast bulk. there were accounts outside of saln. >> i think the answer to that is probably yes. >> it's not the program. it's not what you are focusing on. it's what we are focusing on the
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billions of dollars that are uncollected in taxes. there are a lot of reasons for that but you folks have got to look in the mirror if you want to help us identify one reason. if you go after the folks and i just want to be real clear that you have got a lot there on your looks. if you can't simply say that if we ratify a treaty that is going to solve the problem. does your law saying it's illegal to identify the people on accounts, does that law go away or is it repealed? >> church chairman the laws not going to be repealed the law will permit to give you all the names under the treaty process. >> give us the name which complies with the treaty process. >> is a long way from all the names because the treaty process is going to require your bank by
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the way, if we ask you for the names would you ratify that treaty? that is a commitment which i hope you will keep because remember under that treaty whoever wants those names is going to have to truth that the bank contributed significantly to the aiding and abetting and this is after 2008. you are not going to give any names before 2009 under the treaty, right? >> all of those names which are most of your accounts which were closed by then and the accounts that you kept open are compliant you say because you've got proved so when we ask you for the names pre-2009 when the treaty goes into effect and you are saying under this new treaty you are going to give us those names? is that what you are saying? >> mr. chairman we can give you any names of the accounts that were still open on september 23,
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2009. >> most of them were closed. >> if you look at the account numbers i think that's not correct. >> 50/50 you would say? >> probably you are right but let me maybe just stayed that 50% of these accounts remained in switzerland. they went to other swiss banks, approximately 51st -- % so they would have been opened in another bank in switzerland and there would have been a treaty request that another bank. >> that treaty request again, we have to prove who is making the request that the bank was involved significantly in the aiding and abetting. >> that is again correct. >> we are going to ask you for these names i hope. we will use their subpoena power to get those names so we can collect the taxes owing and you can expect when this treaty is ratified that you are going to
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get a request for all the names prior to the effective date of that treaty. can we get those names from you? >> the treaty works. >> will be get those names from you, half of the 22,000 names? are we going to get them from you? >> the swiss legal system will most likely not let us provide those names. >> don't tell us the treaty is going to get us what we want. it won't. it will just acknowledge that it won't. the treaty is going to do some good in the future if we can prove that the banks that have the accounts have contributed to aiding and abetting and tax evasion which is not an easy proof and it's left up to the swiss courts and we know what the swiss courts will do. so look, most of us i hope want this treaty ratified. it has a slightly better task but please don't represent to
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this committee and to the public when the treaty is ratified we can then expect those names from you are not going to get any pre-2009 names because of swiss law and the additional name as a burden of proof on the applicant for the names. you have got to show that the bank significantly contributed to the problem. if you don't have the names how do you show that the bank contributed to aiding and abetting in tax evasion if you don't have the names of the people? it's a chicken and egg problem. you have been helpful in the college and that treaty is not going to get us the names that we are after. >> one last comment, may i? i would say with the doj program with 106 banks in category 2 that should be a very good indication, very helpful to
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fulfill the standard that the 606 banks have aided and abetted i hope you should get tons of accounts. >> you hope but in terms of your bank you are not one of the 606. you are one of the 14 not covered. >> not covered by the program. >> so you cite the program relative to two or 300 other banks that have signed up in those banks don't have to provide the information. >> the 14 it will apply anyway. the 14 in category 1 in the doj process i think they will facelle a standard for the treaty anyway so we should have the 14, we should have a 106. >> that they are not covered. we don't know for sure. >> i'm pretty convinced. >> you are hoping.
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>> yes. >> okay, we do too. i think it's clear but whether we are talking about the program which doesn't apply to the 14 banks or to the treaty itself they do not give us the names of account holders prior to 2009. is that correct? >> that's correct mr. chairman. >> so we can't collect taxes owing from those folks which is what the heart of the rovlin miss of this hearing. its tax collection.
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one of your bank's former clients who admitted to tax evasion told us about opening an account at credit suisse and he referred to the account holder is quiet one in our report. client one is an american citizen. he opened an account in credit suisse's main bank in z├╝rich providing a driver's license as identification so it made it obvious he was an american. he told the subcommittee that the swiss banker expressly told him that a w-9 form which identifies u.s. accounts and
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most importantly the account being reported to the irs, that banker told client one bed at was, this form was required by the united states but not required by credit suisse to open an account. so he opened the account without the w-9 and used it for light-years so there was no disclosure to the irs. later on the client entered into a voluntary disclosure program. would you agree that this is a pretty stark example of what facilitated tax evasion is? >> yes i believe you are referring i think to client one if it's consistent with the doj document which first opened the account in 1990 so obviously with would look at the timing on that the basic lee yeah i think we would view that as a process
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that is obviously not something we would undertake today and is not something that we in any way approve of. >> under that qualified intermediary agreement of 2001 the requirement i think in retrospect that was a mistake in this agreement only applied to u.s. persons who held the u.s. securities and we were very strict for any u.s. person with credit suisse who wanted to purchase securities we requested and required the w-9 but as you just explain there were situations where clients then didn't buy u.s. securities so they didn't have to sign the w-9 and that led them to what you just described. >> to client one open the account in 2005? is that correct?
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>> 2005, yes. >> you now the bank told us about 150 trips by 10 swiss bankers to the united states from 2002 to 2008 and the subcommittee has documented another 22. did the bank have training or standards with relationship managers traveling to the u.s.? >> i think our u.s. policy was very strict as to traveling to the u.s.. it was only permitted for social purposes. unfortunately as we got to learn during our internal investigation, people used social purposes to get the trip approved and other clients during the. >> did the bank allow visits from the united states to allow them to conduct banking business well on u.s. soil? >> that would have been a violation of our policy.
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>> the bank paid for bankers to travel to the u.s.. 24 trips in 2007 and 2008 and not just live the way by saln the office bankers alone. now take a look at exhibit 5g if you would. your book exhibit 5g. credit suisse acquired -- required bankers to complete travel reports after u.s. trip. this is a travel report for 2008 it is dated march 18, 2008 and
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it was completed by who we have determined to be marcus walder the head of the saln office which is otherwise known as the north american offshore private banking operation. on the form the banker reports that during his u.s. trip he visited 49 clients with assets totaling $230 million. now i think you would read would you not in either one of you can answer this, that it's obvious that this person was doing business in the u.s. solo sitting to the clients and servicing existing clients? would you agree it's obvious from the form? >> i would say that's yes. >> one at credit suisse ignored zone policies that paid for swiss bankers to do this?
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to transact this? why did you approve that? >> i think it was a mistake. this is not authorized travel. they should not have been traveling for those purposes and as they say we should not have allowed the travel to be paid for. the fact that this was overlooked and we allow the travel and paid for it is a historical mistake. there is no other explanation for it. >> so,. >> if we had understood this act david he was going on it should've been stopped absolutely at the time. >> you try to say this misconduct was mainly in one area of the bank suggesting is pretty obvious from our perspective that it was all over the bank wherever aiding and abetting and tax evasion was going on but in any event you acknowledge it wasn't what you considered misconduct was not in
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all one area of the bank. but you said that some rogue bankers mainly located in this one area of the bank, that the bank approved this expenditure. the person's travel should not have been allowed. does that make that person a rogue banker? >> our policy was very clear. >> in your testimony you said the wrongdoing was just a small group of rogue bankers and i'm asking you was the banker who did that traveling and i don't know how many of these cases we have, were all of those bankers rob bankers? >> yes i would say they were violating our policies. we should have had managers, we should have had managers that caught the fact that this was happening. they were wantonly violating our practices. >> you were people wanting to
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travel where they violating? >> what we found they were not intentional but they made mistakes and allowing that. >> the people who approved the travel are not rogue but the people who did travel were rogue is that what you are telling the subcommittee? >> we did feel that this group of people were misleading that a certain level of management misleading management to these activities so yes these people were violating the policy potentially and obviously hiding that from management. >> this isn't hidden to me. it is pretty obvious if you look at this exhibit, 5g just over and over again. a hotel for dinner to prepare for the induction of somebody obviously a prospective customer. we went to dinner followed by a
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meeting and to a certain restaurant to prepare for an introduction. an introduction over the phone. this isn't hidden. >> i couldn't agree more. >> you my question, you say this was hidden from the managers. it was open to the managers. my question are the managers who got these reports in the auditors who approved the travel are they rogue bankers? >> i think their view that the managers, not sure the managers did get these reports. >> if the got these reports, at any rate if they got these reports in the auditors approve them are they part of that small group of rogue managers? >> i think if they were aware and intentionally involved in allowing this behavior they would be. that is not what we found. we found they either unintentionally or through errors allow this to happen or perhaps they weren't vigilant enough in terms of their responsibility but we don't feel
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that they were aware of the conduct. >> even though the document on its face is very clear. they are not doing their job is auditors if they are not reading the document. >> that is a fair comment. >> take a look at the wood at exhibit six. it's page two on exhibit six. now this is a list of important phone numbers. it was kept in credit suisse representative office and it includes this entry. you will find this entry on page
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two. it's about the third one from the top. there are two entries i want to talk to you about again on this list. and important phone numbers. one says joseph during with derek partnership and he is an external trust expert and then the second one is near the bottom of that first group, sing umberger who is with sanko and that person is also an external trust expert. now both of those gentlemen have been indicted for aiding and abetting and u.s. tax evasion. is that correct that your swiss bankers worked with both of these outside intermediaries to help u.s. citizens set up offshore shell entities and to open accounts in your bank in
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switzerland and the name of those entities instead of than in their own names? >> yes, in some instances they did. >> and they were called intermediaries, right? i mean that was one of the names they were called. >> i'm not sure. fiduciaries. >> synonymous with intermediaries, would you agree? >> very similar, yes. >> okay, now the bank has acknowledged it has also worked with other intermediaries. can you tell us who they were? besides these two that have been indicted can you tell us what other intermediaries and fiduciaries that the bank worked with to do what i just describes set up -- this is the egregious conduct you were talking about mr. dougan.
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to set up offshore entities and then to open accounts in your bank in switzerland in the name of those entities instead of under your names. what other names do you know of? >> personally i know of no other name. >> were there others? >> i would have to ask and go back and check. >> you someone behind you might be able to tell that there were others? >> i can ask them. mr. chairman apparently there were others but under the swiss laws we are unfortunately not permitted to give you these names. >> do you know how many others there were? >> do you mind if i ask? >> sure. >> they are telling me including the two you have mentioned a
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total of maybe five, so three more. speaker again swiss secrecy protections are preventing us from going after behavior which is criminal behavior allegedly and is this going to be cured by the treaty? >> i would expect it to a large extent. we should are to be in the position of the names in the treaty. >> you think the treaty will provide that to ask? >> if you get these client names and you get the documentation. when you get them. >> if and when. >> if and when. >> also be clear mr. chairman in our case obviously there will be no issues around this because we are going to be compliant moving forward. >> to the extent that the swiss
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law allows you. >> we will be compliant going forward and be compliant with the laws so we are not going to have any more structures that will be -- we will be compliant with all tax laws. >> going forward. we are asking you about names going backward. >> i've just been informed that they d.o. g. has the names. >> that helps, thank you. now the united states has indicted over two dozen swiss bankers for aiding and abetting u.s. tax evasion including seven from credit suisse back to 2011. i can ask either one of you, do you know of any u.s. extradition requests to bring those to trial i'm talking about the two dozen swiss bankers for aiding and abetting u.s. tax invasion including -- do you know of any
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u.s. extradition requests? >> mr. chairman i don't know of any such extradition requests. they weren't made public, maybe there were some that we don't know. >> under our treaty, extradition of allows the swiss to deny an extradition request for person involved in the attacks of ends. is that correct? either one of you? >> yeah mr. chairman that is typically in the extradition treaties that european countries have, i don't know it the u.s. might have similar treaties.
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>> it does with switzerland. >> yes. >> and the question is whether or not switzerland would deny extradition if the request was made in my question to you both is the following. if the united states were to make an extradition request that by the way we believe there have not been any we as we believe is the case, if the united states were to make an extradition request would your bank object and i would ask you. >> mr. chairman we would not object.
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>> the last area i want to talk to you about is an area what is called net new assets and mr. cerutti one of the things we have reviewed in this investigation is the bank's decisions regarding its net new assets figures in 2012. net new assets is the measure of the amount of new assets obtained by the bank on which it provides investment advice for asset management services. so this -- [inaudible]
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it is in my lingo not the custodial service. it's the investment service. is that a way to describe it which you could connect with? >> yeah i think that's roughly reasonable. >> net new assets is a key performance measure of the growth of the private bank and i think both the bank and investors do it that way. now we are going to talk about a client of your bank and we will call them client five. in 2012 it shows credit suisse over other financial institutions and credit suisse recognize billions of dollars of that clients assets as net new assets. the bank also made decisions on where in its books to credit the
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net new assets. in the various regional areas of the tribe at bank. particularly between two regional areas, switzerland and the american region. recently you have told the subcommittee that credit suisse has initiated an internal investigation into its net new assets process and this is the crosses which i hope you would agree should be objective and should produce accurate financial figures to the public and to investors. is it correct first of all the bank is looking into the possible influence of business people on the net new assets process? >> that is correct mr. chairman. as we have informed your staff we are looking into 2011, 2012 and in a few months or weeks we will report back to the staff.
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>> is the investigation rigging the net new assets, is that investigation something which stemmed from client five assets or is it rather? >> it will be broader. i think we want to look at the area for the two years that i mentioned before. >> you told the sub committees that the investigation has identified indications in the private banks chief operating office that may raise issues, may raise issues of influence being inappropriately placed in the new asset process. is that correct? >> that's also correct mr. chairman. that is why we avoided drawing any conclusions. >> okay. where there e-mails that you looked at? >> kent there were some e-mails
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we looked at in the wording we didn't like. >> can you tell us who sent the e-mail's? >> i think there are a number of e-mails and we are going to report back to the step. >> do you know the names of any offhand? speedups a little bit difficult. i think some are probably in the stack of e-mails here. >> there is no swiss secrecy on that preview can give us that information? >> we gave you all the information that is in the u.s. and we are reviewing the e-mails that are in switzerland. we can give you a summary and the conclusions but we can't at this point unfortunately give me the e-mails that are only in switzerland harriet. >> because of the swiss secrecy law? >> because of swiss data protection laws in the so-called locking statutes it's really unfortunate. >> okay now the private bank
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chief operating officer of believe was mr. ralph locally. am i pronouncing his name correctly? >> that's correct. >> is he one of the people you are going to be speaking to is part of that investigation? >> the investigation is going to be handled by two outside law firms. they will most probably speak with everyone. >> are you going to be looking into whether or not the bank's net new asset numbers on the books were accurately stated to the public? >> that is definitely part of the investigation but so far we have no indication that they warrant. >> are you going to look into whether the numbers on the books differ from the numbers that were shown to the public? did they do for? >> i wouldn't know. >> how do you know -- how do you
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know they were accurately stated? >> that is what i have been informed by the law firms who have looked into this already. at this point there is no reason to assume that the numbers are not correctly stated. >> can you give me the time to get the work and come back to your staff? >> now i'm asking you whether you were told by your lawyers that the numbers that were on the books would differ from the numbers that were shown to the public? can you talk to your lawyers about that problem? >> i am not, this is really. >> that's okay. if you haven't talked to them about it just say so. is that true? >> yeah, i don't have the information. >> that's not my question. have you talk to the lawyers about whether or not the numbers and the books were different? >> can i just ask? >> yeah, sure.
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[inaudible conversations] >> the lawyers informed me you might be referring to internal scorecards versus external, externally published numbers. >> the books versus the public statements? what is an internal scorecards? >> as you know we have a say of a very robust and crisp process around all of our public lee stated numbers. this is another one of our publicly stated numbers. we also have a set of what we call management information. you might think of it as mis so there mi's numbers that we use to judge individuals performances groups performances and those often have a number of different rules that might depart from the public numbers that are stated and there's nothing unusual about that.
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in some cases you might double count revenues in order to provide in certain incentives to different groups and those are the internal accounting methods of looking at them. >> we call them books that we are going to get into some of this. take a look at exhibit 21 if you would. this is a credit suisse e-mail dated february 2012 and the subject is important-and a.
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the beginning of the e-mail, the last page is exhibit 84 and it says we will again discuss our nna results which are very disappointing up until now as a capability to attract clients and new assets is of utmost importance also externally. we need to take all possible measures in order to change this into a positive story within the next weeks. now this is a memo from mr. bogley, is that correct? >> that's right. >> did he work for you? i guess i will ask mr. meister. did mr. bogley work for you? >> that's correct. >> he was the chief operating
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officer? >> he was the chief operating officer and also the cfo for the division. >> he was the one that said we have to take all positive measures to changes into a positive story in the next few weeks. i guess you were in on the e-mail i gather. so he was pushing towards a particular nna result because it was part reported externally. is that correct? >> i think the e-mail was february 27 and the net new asset is one of the key performance indicators. he makes everybody aware that all possible new assets positive or negative can be recognized. >> he didn't say that he is. >> no, but that's a normal process. >> they need to take all
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possible measures to changes into a positive story. that's not positive or negative. he didn't say change this into a positive or negative actor at story. he said we have to take all possible measures to change this into a positive story. how do you get positive and negative when he says positive? >> i am copied on the e-mail but are halves the language is not the appropriate one but generally you go through all the possible -- if it's a change from custody to asset management it can be pre-class to going all over to the the world for the end of the quarter. >> i'm very glad to hear that you seek accuracy at the end of the quarter. this is what this e-mail says. this doesn't say you've got to
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be absolutely accurate because we are making external statements. it says we need to take all possible measures to change this into a positive story. that is a deviation than from your policy i take it rated. >> we agree with that. we have an ordering process to ensure that all of our mma numbers are recognized properly and you are right this kind of language is not consistent with the way we think about it. >> take a look if you would at exhibit number 26 mr. meister. this is another credit suisse e-mail dated december 2012. this is about the fourth quarter forecast also from mr. bogley. our ambition to deliver wealth management clients nna fairground 67 billion swiss francs in the fourth quarter is at risk. it doesn't say our ambitions.
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is says we have an ambition to deliver wealth management clients nna of around six or 7 billion. i take that back. i misspoke because this is a slightly different issue. what he is saying is we want to bring in six or $7 billion i think that's a more accurate reading and what i said a moment ago. i don't see anything particularly wrong with saying we have an ambition to add nna. nothing wrong with that. then it says three weeks to go until the year comes to a close we still need 3.5 billion francs to reach the lower end of this ambition. this requires a efforts on all levels. what does that mean, efforts on all levels? >> to give you perhaps a limited perspective even the language
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could be quite unclear. you have normal in an outflow of net assets but you have these so-called custody clients like the client looking in every single quarter. this was what his intention was. the intention of the client and the advice we could provide and for that you have to go through all the different regions to look on the tickets. of course they have to go back to their relationship management to look and in advance that we are ready by the end of december. that is the intention even though the language is not exactly what you normally have. >> mr. chairman matt and jack? is hard for me to say specifically but if you look at the e-mail specifically the
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people it's addressed who are the sales managers and a couple of the project managers. to have an ambition as you said earlier to hit a target is similar to a sales target and a quarter and addressing the sales manager seems to be a normal course of business looking at it objectively. >> if you discuss either one of you but you discussed with mr. bogley pushing bank employees to meet external targets? >> i wanted to explain before as a normal process we are cohorts of course and we always push in our function and that means that all new intents of the clients ordered investment advice is reflected in the system and mr. bogley at the time in charge of this process made it aware 12
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business fans around the world that they have to take responsibility and ownership to look to make sure the right ones are in place. >> did you talk to him about the language of this e-mail? >> not -- >> did you ever talk to mr. bogley about the language used? >> not to my memory. >> mr. meister during 2012 client five was shifting assets apparently to bring them under the investment management at credit suisse. his assets were a boost, a big
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boost to the bank's net new asset total for 2012. this is especially in a year when net new assets were under pressure because the bank didn't have much new money coming in particularly in switzerland. now that is one issue. it's not the issue i want to focus on today. when the bank showed the nna stemming from client five's assets the bank had a decision to make about what region should receive the credit for that is assets. one issue which i'm not going to oka son has to do with whether or not that was properly considered custodial or investment and whether he had properly shifted it to investment in the absence of a signed agreement. again i'm not going to focus on
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that piece. i am going to focus though on the decision as to what region would receive the credit for that asset. he said it was your decision mr. meister you decided to split that net new assets 50/50 between the two regions of the private bank america and switzerland, is that right? >> that's right. >> told us he made the decision early in 2012. is that correct? >> that's correct. >> now i want to discuss what happened in the regional credit before the net new asset with client five and 2012. >> in the first quarter the nna net new asset for client five was actually split 60/40 between america and switzerland. why wasn't it split 50/50 between the americas and switzerland like you said?
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>> i don't know. >> the second quarter the nna for client five was not split at all. entirely credited to americas. why? >> although the -- also this i don't know. >> going back to the beginning of the year retroactively, adding up all the client five assets divided in half, deducted $1.6 billion from the americas, added it to switzerland. retroactively why did you do that? >> also this i don't know why this was done in the third quarter but it was in line with my original decision to do it 50/50 because the story looking back in the last 10 years and especially before the client decided to sell his company.
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>> it also had a major effect did it not on the net new assets for switzerland? it made it look a lot better than it otherwise would. >> to split the 50/50 generally? >> no, the retroactive shifting around of these numbers made switzerland look a lot better than it otherwise would be so be the american section. >> that's right, yes. >> mr. chairman of packet ad that was certainly the impact of that. we also showed even more transparent disclosure on those net new assets and switzerland and in showing outflows and switzerland so we are not trying to hide the fact that there might be outflows and switzerland because of certain business trips. that would certainly be an effective that but i think their view shows the accurate numbers which is the 50/did the split which we thought was an accurate way to do it for you.
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>> if i may, the only thought i would add the first two or three-quarters i was in the regional role in the americas involved until the fourth quarter but i do remember the specific agencies and the issues around this client. there were multiple people involved from the investment banking people to the private banking people both in switzerland and the united states. it's difficult to determine whether it's 60/40 or 50/50 or 25/75. i will say this it was clear from my seat that there were several pete all that were part of winning the mandate for this client and as long as i have been with businesses involving people from different regions -- regions when i heard about
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splitting this thing down the middle that didn't seem consistent with what i observed is the fact pattern around williams business. >> that was not the question. the percentage six shifts around. that's the problem and it obviously has an impact and very favorably to what the public perception is. would you agree with that? >> it has an impact and again in terms of the overall financial results this is one element which i would say in seven years as a ceo i have been asked a couple handfuls of questions about the nna numbers especially on a regional basis so i'm not sure that it's that important an issue that investors focus on. >> are you serious? that is not a factor that investors focus on? >> it is a fact. it's not high on the list of importance. that's just my experience. >> would you say it is a relevant factor for investors? would you say it should be accurate? would you say it should be
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manipulated to give a particular impression or to avoid a bad image? >> of course. >> that is what happened. it was shifted around from quarter to quarter and it retroactively was shifted which then helped switzerland, this was part of the operation look like it had a little bit of net nna. >> mr. chairman i understand of course. >> that is the chart we are looking at now by the way. >> one thing i wanted to add especially with the psi when you look back is it 11 and also the last quarter of 2013 we are not shy to show negative numbers and switzerland and we had the last quarter it in 2013 which is a negative number so looking
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back the investigation is the fifth the/50 split out of the original discussion and then reasons mr. shafer explained before but how this was implemented ,-com,-com ma this was a part of our investigation hopefully we find out the reason why it was done. ..
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>> this is the third quarter. the e-mails shows the retroactive split. it meant that the bank's internal bucks had different, whenever you want to call them, internal -- you know, a different word for books. mr. k-9, the internal -- >> we call it in my estimate management and formation system begins that is to distinguish from the financials. what management uses. >> your own internal had a different number from the external book.
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here is what it says in this e-mail. as per your request, please find below the bridge, the bridge for the third quarter 2012 as reported internally for private bankamerica. first the external release figure. here it is. you are very much aware that there was an external release figure that is different from what you were showing internally why? >> mr. chairman, that is actually as i tried to explain before is a very common occurrence within the bank because we do, you know -- >> on this kind of an issue? >> we are trying to provide the right incentives for our sales forces. if you think of it, it's more like a sales credit issue which
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is not as and cleansed by the financial statements. happens in this economy and on all sorts of issues. >> i'm only talking about something which is shown to the public. and where it is different. of very critical way and a very critical time for your bank. and the effect was to you are saying, is a coincidence. >> note : -- >> are you saying it was a coincidence? >> we have specific rules around how internal numbers are calculated. in fact, i think what this e-mail is laying out is a reconciliation between what is reported from an mri as point of view, a management perspective verses the financials. we would have this every quarter there would be a reconciliation between how we. >> you will show this big gap between what the internal still
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show? >> the size of the gatt may vary from quarter to quarter, but there are a series of rules and the way we think about it internally verses the external numbers. >> which was more accurate? >> i would not know how to answer that. externally reported numbers we have the rules which we follow and we will look into making sure we're following as faithfully in terms of the we externally report and that internally we have a different set of rules in terms of how we think about and show those numbers internally to manage and motivator sales forces. >> can we agree on one thing, switzerland and receive the reallocation in that quarter, it would have shown an-1 a half billion? would you agree with that? >> that is correct, but also i guess i would point out that it was really -- it should have been 5050 all along which means that switzerland would have benefited. so we penalize in the first and
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second quarter by not properly reflecting that. you're right. in the third quarter that came through and benefited switzerland but it effectively have @booktv -- if someone was intentionally trying to benefit the did a poor job because the first two quarters was the other way around the question isn't benefiting such loans. the question is showing in switzerland and the positive or negative. that is the issue. and by shifting this money retroactively you are able to show publicly, and externally, that switzerland is slightly is up instead of massively down. that chart up their shows massively down. that is where your internal book show. publicly you showed slightly up. that is not casual. that is important. that is what people count on, one of the things they count on when they invest. now, take a look at page 135 in
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a report. what exhibit is this? is this the new one? >> it is in the report. >> we are going to give you our report so that you can take a look at page 135. >> thank you. >> thank you. >> this is a page from your third quarter earnings report. and it is headed swiss francs 5 billion, net assets. >> page 134. sorry. did i get it wrong? >> sorry. 134.
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there is a page from your third quarter earnings report which says swiss francs of 5 billion net assets driven by inflows in international bookings centers predominantly from emerging markets. that is what you are showing the public. and then you look at this on the right hand side, strong inflows from asia pacific, emea with strong inflows. look at that third one. positive contribution from america's and switzerland albeit seasonal slowdown. now, mr. dugan, i don't think that you can fairly or honestly say that this is irrelevant, this representation to the public. >> of course i would not say it is irrelevant. >> and it was the result of putting aside the motive for a moment, the result of that
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retroactive shift. is that correct? >> the original allocation was. obviously the overall numbers referenced would not have been. regional allocation. >> would have. okay. and how do you think this would have read if it said positive contributions from america's and-in switzerland? the thing that gives a different impression to the public that is with the sec said? >> it does not make any difference. the public does not read these things anyway. >> is that what you're saying. >> i think they read it and it is to be correct. i don't think it would have read a significant difference in terms of how the earnings result would have been perceived because obviously it is a much broader, more detailed set of issues. this is one aspect of the regional allocation between two regions, not trying to minimize it, but it is relevant, but it is a detail in the overall -- >> it is not a detail when you
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said positive results. black and white from switzerland to lobby its seasonal shutdown. look at your chart. your chart. but you may call it a detail. i call it something that investors would presumably look at. i hope they care whether not in a break is profitable or which region it is there isn't. let the private banking third chord chart. you show for the americas. two plus for switzerland. one plus of that is all on the upswing for your entire bank. and you want to, but l.a. you say it is the entire bank which counts, that's the five nasa assets. there is something else that counts. there is a visual that you created the shows generally on the upswing. and of that visual have reflected what the division was
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before the retroactive activity you would have had a big increase for the americas and a big decrease in switzerland, and that would be a hell of a lot different to the viewer and what your charges. would you agree with that? it would give a very different impression visually. >> i would agree it would be different. i agree that numbers need to be accurate. the question of how important that would be is one that you and i disagree on. -- >> by the look of being a will to avoid this kind of situation where your internal bookstore i'll call them, is different from your external to this degree?
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you going to change any procedure at all? >> we will look into the whole process and take whatever measures we need to take. it is broadly a little premature to talk much about that, mr. mr. chairman. certainly we believe it has been a process that has an integrity, but we will look at it to make sure that it does answer to make whatever changes we need to make. >> please take a look at exit 28. this is a credit squeeze e-mail dated january 2013 regarding americans. wealth management clients runs substantially below expectations
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. in order to support the private banking division a further -- now hebert furs to a planned five. >> sorry, mr. chairman. problem to locate the document. >> i understand. let me slowdown. >> no, which number. >> twenty-eight. >> twenty-eight? okay. okay. we have found it. here currently. >> thank you and it is down on the bottom. this is from mr. buckley. it is stated -- you get the date. >> yes, we found it. >> okay. currently. so dear, tony. twenty-four reporting w nc runs were in mannai substantially below expectations. in terms of your region latest indications for your original estimates approximate over to a half billion compared to it
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predicted forecast a 3 billion which is an excellent result in stormy times. however -- and this is the part of what you to focus on. in order to support that tb division, a further portion of the 1 billion swiss francs fully reported internally and externally to the americas region would be a great favor, a great favor for our division. is this the way -- is this the way your bank to operate? >> no, it is not. that is not language that we would agree with that is not consistent with the process. so, no, we don't think it is. >> mr. hans-ulrich meister, did you talk to him about this before he asked his colleague for the favre? >> i can only repeat what mr. dubin said. the language, of course, completely inappropriate and in favor is completely wrong with displaced because when they
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speak about 900 million there is a completely separate process which goes to the cfo area of the group so that nobody can give a favor if there is not a case for it. so i can only say the words used in the know were completely inappropriate language. >> but it also said that, mr. hans-ulrich meister, that you would be extremely happy if he could support this. >> also this. >> is that true? >> was that. >> i can't remember. >> but would you -- would you have been extremely happy? >> i would never use such terms. >> wordy you get that impression from? >> i'm sorry? >> where did he get the impression you would be happy unless you talk to him. >> generally it is clear that we dry the organization. we have an asset number and
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hopefully positive region's demand we are more happy if there are bigger portions, but always in line with within the rules of the process is allowing >> you can say always in line, but that is now with the males they. >> yes, i did -- >> it is not always in line. the question is, you were reported as being extremely happy is that favre were granted. my question to you is whether not you talked about this before he asked his colleague for that favor. that's my question. >> i cannot recall that. >> mr. robert shafir, are you familiar with the banks account for client five? how the bank showed a man half billion dollars for 2012 as a result of planned five? >> yes. >> did you ask the deputy to take a careful look at the fourth quarter recognition by
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clan five? >> yes. >> the next up was were and to get the head of finance to review. is that correct? >> yes. as he said, we have a process specifically -- there are two parts of the process. the first part is we have an independent committee that would set classification as a whole. the second piece of the process, for larger transactions, to bed with 500 million are above, their findings have to be reviewed and signed off on by the finance organization. the cfo of the americans. >> okay. continuing now, let me take a look, exhibit 29. >> in the second page about
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halfway down the e-mail indicates that carlos asked for further detail with regards to the revenue. on the first page mr. bush lee responded, given the rather weak granular a we need to create a more powerful story in a sense of making more a round -- making more around the existing greek figures in a sense of redacted, xx accounts all held in the xx branch covered by two senior arms would sue hy interaction level.
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might not be relevant and enhance story, the know what that is? >> i don't know specifically. >> a half truth? >> i don't know. >> and enhanced story. does that language trouble you? >> the language is troubling, but it is difficult to say what he meant by that. i was not privy to this e-mail. as i said, this process did go through two different checks, the independent committee and also the finance organization as well. >> what does is say, though, when it says it might not be relevant but sounds rather good. is that the way you folks -- is that the way you operate? it sounds good, not relevant. >> senator, i can't respond --
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>> what do you think, mr. cain night? >> i don't think, as you say -- would prefer -- i certainly don't think that is consistent with our process and does not sound -- i think as he said, i guess when i hear something went in and story like you said it could mean, as you say, a story -- something that is made up. of the other hand, enhanced -- you know, if there are enhanced fax around it -- >> no. no. >> try to get a better and with. in hants story. >> i think -- i think it may be hard to determine just from this language. it is hard to exactly determined i would read that we would have the same concern in your voice and is part of a we will be looking into it. >> these are examples of your process at work. i think you have real problems with your process. >> we're going to look into it and determine if we do have
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problems we will address and fix them. >> would you get back with us what if anything you do about it? >> sure. >> and, by the way, you said -- i think, mr. robert shafir that you did not see this e-mail, is that correct? >> that is correct. >> how about you, mr. mr. hans-ulrich meister? >> no, not to my memory. >> okay. is this an appropriate way to recognize, to make more of around existing weak figures, is that appropriate? >> i'm sorry, i think to repeat, again, the language used tear out of this context is definitely not what we want to see. >> out of the context, given the context. you have the whole context. you have the whole e-mail. >> but what you don't know is its own this, the real asking about, more granular a, why he
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could really -- i don't know what it really means. this e-mail, a german-speaking guy. so this is also, you know, perhaps, taking into consideration about what the language a round this, therefore it is difficult based on this e-mail to say what the intense was. >> mr. k-9, i hope in your investigation that you would take a look at the process to recognizing, that is represented to the public. and it it cannot -- it cannot be accurate and involve colleagues to recognize a favor. would you agree? >> i would agree with that. yes. >> and it cannot have enhanced stories. it is got to be accurate stories. would you agree with that? >> i would agree. again, i'm not sure what his exact meaning was.
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>> , an understanding of man's story. >> again, he is not a native english speaker. it is a little unclear. amelya interpreted, i agree. >> the way i interpreted, in in story, the way you interpret enhanced story. would you agree you don't want enhanced stories? q. what advanced profits? >> again, as a native english speaker, i agree with you. >> you don't think that we should make more abound the existing weak figures. >> not language that i think is appropriate. >> and might be relevant but sounds rather good. >> not language of think is appropriate. >> this process the way you read it is not a good process. >> well, actually, you know, do believe the process is actually a good process, but we will get to the bottom of it and figure it out. >> was the process reflected in the same as the kind that you want to defend? >> the language and the things that have happened here, no, absolutely not. whether the ultimate decisions
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that were made in the actual the terminations were made were correct is a different issue. absolutely, this kind of language and approach to the process is not consistent or acceptable. >> thank you. [silence] >> well, it has been a long hearing. we are very -- we are grateful that you appeared here today. for your cooperation with the subcommittee. we will look forward to the reports that you have promised to give us. i guess the bottom line for me is that your bank is a bank that really wants to be seen as a
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reformed bank. and in your opening statement you laid out the reforms to you made. so that is something which is important to you. you don't want to be in the dirty business and the lager of helping u.s. clients cheat on their taxes, but it is important if you are going to really be a reform bank that you have got to acknowledge what is clear in our report, that the wrongdoing went beyond a small group of wrote bankers, that there are 22,000 swiss accounts that were hidden from our authorities, and we need full cooperation if we're going to be able to collect the taxes owing from those accounts. we need your cooperation. and the bank right now is hiding behind a shield that the swiss law tries to provide it which cannot be recognized in any
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other country because we have to apply our own laws. if you do banking in this country you have to abide by our laws and you have to take on their own government and explain to your own government that you are banking in other countries and cannot cite a swiss law that says account names are going to be kept secret in defense of, what i hope will be the enforcement of subpoenas or other appropriate actions in order to get those names. and so will we will now do is recess the hearing. we will resume at 3:00. in a different room -- we're going to resume at 3:00 p.m. at 342 direction which is the full committee hearing room because the department of justice is informed us that mr. kohl has to
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go to the white house. we have agreed to accommodate him. that is the reason for the delay, the reason for the changing room. i do not have in front of me, but i don't know, but for those of you who are going to be here this afternoon or want to be here it will be a different location. we thank you again, all of you for your presence and you're excused. >> mr. chairman, that you very much. [inaudible conversations] [inaudible conversations] [inaudible conversations]
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[inaudible conversations] [inaudible conversations] [inaudible conversations] >> we will come to order and no call our second and final panel of witnesses for today's hearing . the deputy attorney general of the united states department of justice to my james cole. kathryn keneally, assistant attorney general of the tax division of the u.s. department
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of justice. we thank you both for being with us today and look forward to your testimony. as you know, pursuant to rule six, our witnesses to testify before the subcommittee are required to be sworn. this time now as they you please stand and raise your right hand. these were the testimony you're about to give before this subcommittee will be the truth, the whole truth, nothing but the truth, so help you god? >> thank you very much. you will be using our tax system today. minutes before the red light comes on you will see the lights change from green to yellow which gives you less opportunity to conclude your remarks. they're written testimony will be put into the record in its entirety. we would appreciate your limiting yourself to 50 minutes. if you need more will try to arrange it. we will go first mr. kohl followed by mr. -- missed kathryn keneally.
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>> thank you, chairman, ranking member mccain and first of all, mr. chairman, i want to thank you for accommodating the scheduling we had to do today. we very much appreciated. want to thank you for inviting us to testify in the department of justice efforts to discuss was bank u.s. tax evasion. with me as you noted is kathryn keneally, the assistant attorney general for the tax division who oversees the department tax enforcement program. the department of justice is committed to global enforcement against financial institutions that facilitate cross border tax evasion. as well as against the individuals who evaded tax reporting obligations. the bankers, accountants, lawyers and other professionals and up the new will expand our investigations to up to attacks cheeks and the banks attorney --
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says 2009 that department has publicly charged account holders of violations arising from their offshore banking activities and 72 individuals have pled guilty or were convicted of trauma -- at trial. just as importantly our enforcement efforts are driven over 43,000 taxpayers with secret offshore accounts to identify themselves to the irs, disclose their offshore accounts, and to pay a total of over $6 billion in back taxes, penalties, and interest, and that number is growing. as the subcommittee well knows, investigating offshore banks and u.s. taxpayers with secret foreign accounts is difficult and time-consuming. it requires us to use virtually all of the tools at our disposal and to be creative and innovative. we must pursue not just legal avenues such as grand jury
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subpoenas and john doe summons this. also discussions with this with government to obtain information many. many to make full use of coal operators and whistle-blowers. i can tell you that we are receiving information from such individuals in the offshore cases we're working right now. in appropriate circumstances, the department may seek the enforcement of a bank of nova scotia grand jury subpoena or a john doe summons for swiss bank records, but those tools cannot always be effectively employed. first, they can only be used against a foreign bank that has a u.s. presence, and the majority of the swiss financial institutions that we are currently investigating cannot. second, the use of bank of nova scotia grand jury subpoenas or john doe summons is for extraterritorial records may result in protracted litigation. absent at -- acquiescence by the swiss government a bank may be competent facing contempt sanctions in the u.s. of
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violating swiss law orris was blocking order. because we are involved in active, ongoing criminal investigations we are quite limited and will weaken disclosed publicly. but just because we can't disclose what we're doing this not mean we are not actively pursuing these cases. i do, however, want to quickly discuss a number of public actions we have taken recently. we fully expect additional public developments over the course of the coming months. by way of example, in 2013 the department obtained four separate orders authorizing the irs to issue john doe summons is seeking records from banks in the united states for the u.s. correspondent accounts of banks located in the caribbean, switzerland, and other european countries and have successfully compiled account holders to provide us with their personal records of their foreign banking activities. since the ubs deferred
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prosecution agreement in february of 2009 the department has taken public action against two other banks. january 2013 dagen, one of the oldest financial institutions in switzerland plan guilty to conspiracy to defraud the united states and was ordered to pay substantial fines. as a result of its criminal conviction dagen was forced to close the stores, which sent a shock wave to the community banks in switzerland and bankers into excellent that had been engaging in facilitating u.s. tax evasion. in july have tilted 13 lichtensteinish landesbank ag entered into a non prosecution agreement and paid substantial fines. it is particularly notable about this case that we were able to take an innovative approach and with the banks' cooperation have liechtenstein actually change its bank secrecy laws retroactively which enable the department to obtain files
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relating to noncompliant u.s. account dollars. in august 2013 the department publicly stated that 14 banks that had been authorized for investigation concerning the use of swiss bank accounts which is in addition to ongoing investigations concerning cross border activities by banks in india, as well, liechtenstein, luxembourg, and several caribbean countries. a fundamental issue with respect to obtaining cooperation from swiss banks has been the degree to which swiss law blocks disclosure of banking information, including the identity of account holders, and for this reason the department and the irs engaged in a series of discussions with representatives of the swiss government. on august 292013 the department announced a program for non prosecution agreements or not target letters for swiss banks. this program is designed to
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encourage swiss banks not currently under investigation to cooperate with law enforcement efforts in return for the possibility of not prosecution agreements or deferred prosecution agreement. i want to emphasize that the program expressly does not include the 14 swiss banks we have targeted and are actively investigating. each of those banks will need to negotiate a separate resolution with the department which reflects the severity and magnitude of its current, nor does the program offer or provide protection or immunity to any u.s. account holders or foreign bankers or other advisers. what the program does do is provide an opportunity to banks that we currently have little or no and 55 little or no information about a self report to the department that they have committed or facilitated u.s. tax evasion. by the program december 301st 2013 deadline. the partner received letters
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from 106 swiss financial restitutions concerning their intent to participate in the program. the program requires extensive cooperation by each participating bank, including full disclosure of its illegal activities, the names of each of its culpable employees and their party advisers to and the number and value of each of its u.s. accounts. for accounts that closed after the investigation became public the banks are required to provide information and of the department to follow the money. that is, we will be given detailed information to enable us to go after swiss banks and banks around the globe to which those secret accounts were transferred. in addition to this, require the cooperation. each of the banks may -- must pay steep penalty calibrated to reflect that magnitude and severity of the banks conduct and agree to get out of the business of facilitating u.s. tax evasion.
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every swiss bank the comes forward to cooperating the program represents an opportunity to obtain valuable law-enforcement information which is new to the department and from a source which the department did not previously have. will the program does not expressly required the banks to provide the identities of account holders, which is barred under swiss law, we will be able to use the information that banks are obligated to provide for the program to formulate more effective treaty requests to obtain that very information. and as one of the requirements for obtaining an in pardpa, the banks are obligated to assist the apartment in preparing such to your requests to my requests that this was government have committed to process on an expedited basis. that treaty process is working, to some extent, and we are receiving information. we cannot disclose the details publicly, but our success has not escaped notice. since the announcement of the
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program the irs has advised us that they have seen an increase in the number of u.s. taxpayers participating in their offshore voluntary disclosure program. we believe we could obtain substantially more account information if the senate were to ratify the treaty known as the protocol amending the connection between the united states of america and the swiss confederation for the avoidance of double taxation with respect to tax income which was ratified by switzerland in september of 2009. as you yourself have mentioned, mr. chairman, i understand there is a hearing on the street this morning before the senate foreign relations committee. as i noted earlier, as a result of our enforcement efforts to over 43,000 individuals have self reported that they have secret swiss bank accounts and then over $6 billion in back taxes, interest and penalties. in contrast, before 2009 our law
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enforcement efforts in this area, the average number of voluntary disclosure submitted to the irs range from approximately 50 to slightly over 100 per year. because the swiss banks that operate under the program will provide information about bank accounts globally, anyone who has not yet come forward to this cause a secret bank account anywhere in the world is on notice that their time is running out. the department is engaged in and committed to robust enforcement globally using all available tools to enforce the law that we have at our disposal. want to thank you again, for the opportunity to appear this morning to discuss on law enforcement efforts and thank you for your strong support of this muddle law enforcement matter. we're happy to answer any questions that you are the other members of the subcommittee may have. and given this opening statement
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on behalf of both myself and ms. ms. kathryn keneally. >> thank you so much, mr. kohl. we will have ten minutes for our first-round. a subsequent round for each of us. on page four of your statements, your written statement he said the following, and fundamental issue with respect to obtaining information about accounts located and switzerland with in the degree to which it this was lot allows disclosure for the avoidance of double taxation with respect to taxes on incomes earned in 1996 and then use a swiss banks have often contended in response to our investigations that swiss law prohibits meaningful cooperation as part of our efforts to obtain information from these banks the department and the irs and gays in a series of discussions with representatives of the swiss
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government. now, the bottom line here, and i think the real problem and we have and that think this applies to more than myself. i will just say surely i haven't others will speak for themselves , this endless negotiation with the swiss about their laws instead of implementing our loss. instead of using the tools at our command year after year after year we have to deal with -- in 2011 we issued subpoenas to a credit suisse. they have not been enforced. and so we have got tens of thousands of names of people who have the evaded taxes that credit squeeze has. and what they do is say, well, we have to go through a treaty request because they're is a swiss law. there is a swiss law and we're worried about. well, i am worried about implementing our lawns andthe failure to address -- aggressively use the tools at our command to implement our
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loss. so why is it that you focus ready your testimony about a series of discussions with the representatives of the swiss government, why is that such a part of what you're doing instead of doing what we know succeeds which is what we did with ubs when we blew the whistle on them here in the subcommittee and then as a result of the exposure and is a result of the embarrassment and as a result of our investigation , what they did was basically confessed error and turnover names. and those names led them to the fear of god in the name of and the hearts of all lot of tax evaders. that is what led to people paying there taxes. it was the figure then once ubs released names, the heart of the matter, names, names command is
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like location, location, location for the value of real estate. you have to get names. you talk a lot about this new program that you have coming you get bits and pieces, leads, and they will go to other banks. then you have to make tree requests with those banks. that is -- those are goose chases. and what we need is to see aggressive implementation by the department of justice. 2011 subpoenas, we don't see any enforcement. now, you have issued a subpoena. you have issued a subpoena and you have not been forced to. and i'll only say one other thing about this tree request. we always have not been so willing to rely on to reprocess.
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we hope that we ratify the treaty. let me get that clear. a slightly better criteria, not much by the way, but slightly better criteria. i hope we ratify it. it is also full of holes and does not get as to the names before 2009. those are the major names that credits we sense, a major number of names, half of the names before 2009. they are not covered by this new particle. and then there is something else which is happen. the swiss unilaterally announced in their parliaments in the 2002 found that the protocol is not killing to apply unless the person who makes the tree your request can show that the bank
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that seeks the information, the names from, that the bank significantly contributed to a pattern of conduct by the very and named people -- you don't have the names. it is a chicken-egg kind of deal. gives you just the hands. then you have to make a treaty request. and then it is against the bank where you have now under a unilateral law passed by this was, you have to make a showing. where's the shilling made? this was court. and what has -- what have they done? we can every effort we have made to appear secrecy because bank secrecy is the law of switzerland. now, we have not always been willing to rely on the treaty process.
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the senior irs official deputy commissioner told the u.s. court the following about this so-called tree the request. he said he spoke with the officials of this was government about the treaty request on january 21st 2009. during that conversation i learned that the swiss government had made final determinations to provide the requested records for only to of accounts. they will not provide records to the irs about those 12 accounts until after the account holders have been given an opportunity to litigate in a swiss court. the swiss government decision to turn this to of records over to the irs. in some the said to the court, the american court, this was government has not provided any records of under the treaty request, and it is not clear when it every well. now, it is very clear that the department has the authority right here at home to require
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the banks to hand over client names and account information. it has been established law for 30 years that a foreign bank operating here in the united states served with a grand jury subpoena to provide records in its offshore offices, in other words, in its offices back home, must obey and abide by that subpoena. in the court here, 11th circuit sort -- court of appeals upheld this arena and set in the bank of nova scotia cases, this course simply cannot acquiesce in the proposition that the united states criminal investigations must be thwarted whenever there is a conflict with the interest of other states. the of foreign origin of the subpoena documents should not be a decisive factor. nationality of the bank is canadian in their case, but its presence in -- is pervasive
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which is true of credit suisse. you cannot expect to avail yourself of the benefits of doing business here without accepting the obligations. that is good lot today established that the department has the ability to control our own destiny -- destiny on these matters and always have to play ball with the other country into play on their play field. as the authority and power to create for itself a direct line of evidence that it needs and wants in order to identify tax cheats and the entities bat-to-bat them in and collect what is up to the united states government. that of productive treaty process has been a proven way to get names as seen. so i am going to ask you whether or not you accept that decision
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of the swiss parliament, they unilaterally placed limitations on this 2009 protocol. >> mr. chairman, i want to start out by telling you how much a share frustration in trying to get the names of account holders to u.s. taxpayers who use was banks to try and hide their money from lawful u.s. taxes. this has been a source of frustration from the day i got into office as the deputy attorney general. this is are using all our tools because it is tough to get through the swiss secrecy laws. we have gone through the analysis of the bank of nova scotia subpoena. what we have determined it would give us to enforce it, we have never seen one, bank of nova scotia subpoena has actually produced an account record from switzerland. what you get if you try and
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enforce it is a contempt citation for failure to actually produce from the court with lines that will go each day. many of these financial institutions are very very wealthy and can afford finds them don't want to run afoul of swiss law where there are. secondly, you can only bring one against the company or a financial institution that is in the united states. >> is credit suisse in the united states? >> it is. we raised the ubs example which i think is a good one because it informs how we go about trying to get through this frustrating brick wall that this was part of . in that case they built a case against ubs. at the end of the day as i understand out the names cantor it was through the resolution of that case and then ultimately actually enter the request that produced the 4700 account names.
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many, many more were sought at that time, but only 4700 were produced. and it was part of a treaty request process in relation to they're deferred prosecution agreement. what does that tell me about the best way for us to go about this what it tells me is the best way to go about it is to build a strong criminal case against the banks in switzerland who are fostering that tax evasion by the u.s. citizens. what i have been focusing on is ways that i can go about getting information that i can use to build a solid criminal case against the 14 banks, and that involves many that the account records. lessons to be the real '. a lot of the discussions we had were bucking the internal bank records cannot account records, about how those banks conducted their business, but to the employees were in the bank's who
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were fostering in facilitating those tax evasion's him about and the managers were who were operating in and running it and condoning it so that we can bring criminal charges here in the united states against the financial institutions and their officers and employers who are doing it. when you do that, that is the lesson that ubs taught us, how you get account records out of the swiss. otherwise they put up their wall >> thank you. my time is up. >> mr. chairman, on going to a different this time. >> thank you, mr. chairman. i am no lawyer. so can you talk to me a little bit about what type of criminal charges would you try to bring in the impediments and challenges of doing that here in the u.s. against a swiss entity? >> there are a host of criminal
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charges you can bring depending on what evidence you have from aiding and abetting tax evasion to conspiracy and fraud. there are a host. you have to sit and go through what your best alternatives would be, but there are a number of provisions about the tax code and the criminal code. >> and will with the criminal charges brought against ubs? >> i was not here during that time. it is that being a deferred prosecution agreement. i defer to ms. kathryn keneally as to the details of that. >> i also was not hear of that, but i understand it was a conspiracy to evade taxes in the united states. >> what i was trying to establish was kind of the obvious in terms of what a switzerland have this huge banking sector.
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with the swiss government was so utterly opposed to any kind of transparency, they don't want to destroy that safe haven for the country's. so is there some way of preserving that safe haven in switzerland for other countries and still allow the u.s. to get that type of information that we want so there is no tax fraud being -- >> this is what we're trying to discuss with the swiss. germinal been mentioned the 2009 treaty which is very different in many respects. it is not perfect. it is not going to be a panacea that will solve every problem. stop right there. talk to me about the holes in it . what are the primary problems with that treaty? >> you know, senator levin has
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described what he views as a number of calls. i think that there is no treaty is perfect. we just look for as many tools as we can find in order to use them all because we need to combat this problem from a number of different angles. there is no one strategy that is going to solve this problem. you have to do a number of different strategies to try and break through it. >> but again, do you have a comment? it looked like you wanted to say something. >> i would, under the current treaty we are required to establish a swiss standard higher than tax evasion under the protocol is irrelevant standard and under the protocol is a relative send it to any tax enforcement which would give less of formation of the civil and criminal side and would enhance our ability information in those ways. tense your question, senator,
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why -- on how to allow the maintenance of its banking system for other reasons and eliminate this, i think the protocol goes a long way toward addressing that issue, as to other steps that switzerland and its banks have taken. >> can you describe how? >> well, switzerland ratified the protocol which will enable us to get information from its bank when we needed for tax enforcement reasons in a far more simple approach than not. separately -- >> that is going to require us to actually have knowledge that there may be some fraudulent activity occurring, correct? or not? >> senator, we need to be able to say that the information we are looking for is relevant to our tax enforcement efforts.
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senator levin is correct that this was to enact this legislation saying that there would need to be involvement shot by the bank. we need to ratify the per contest that, but the way that we have designed our law enforcement effort under this program that we have for the swiss banks, those banks that we did not already have under investigation and were not on our radar screen who have come forward will need to tell us what they did and what their wrongdoing was and corporate with us in formulating requests. they believe that will get as the account information under the current treaty. >> that would be specific taxpayer and the time? is that a more broad requirement
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? >> i know the 96 treaty, in effect today, or the protocol we can make requests that are known as pattern requests and request a kind of product are kind of canada or in accounts and then get the account information which would give us the individual account all this. >> what%. >> what% of accounts you think that would reveal a high percentage? what we still. movie be talking of a 238 names? >> the protocol and combine it with the information we expect to receive from the banks through this program we have set up it would be a high percentage of the accounts that are currently in switzerland, and we would also be getting information about the accounts that close or were transferred. at the greed -- we would get a high percentage.
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>> earlier obviously they era reduce the number of u.s. held accounts pretty dramatically. what is the facts on the ground with the other banks in. >> we are a little limited number we have talked about the we have learned in the course of our investigation is these are banks that currently an investigation. as been a long lobov from statutory secrecy, a grand jury secrecy, long standing department of justice rules, don't talk about all the things that we're finding. >> have you developed an estimate of how many dollars or how many americans, how many dollars have swiss bank accounts and how much investment is there? >> there have been a lot of numbers turn out. >> arrange. >> i'm not sure exactly what the range would be and how valuable it would be. you want to measure by how many dollars to bring in from the
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voluntary disclosure programs of for rhiannon's which -- 6 billion. since we established this latest program the numbers in a voluntary disclosure are going up significantly. real looking for to that number going of. it will be opposed you that will tell us how much. >> i understand that. think you'd need some kind of estimate. 50 percent effective? do you think maybe that liability would be 12 billion? 1%, even higher? >> i will let ms. kathryn keneally talk about it. we don't know how many people really put that in there. we knew we would be more federal we know it is a sizable number. >> senator, all i can say on that is the set this prominent place in late august. 106 swiss financial institutions can forward. you had asked me in august or september i would not an anticipated


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